Chinese EconomyThe size of the Chinese economy is likely to climb, in world rankings, from

Chinese Economy

The size of the Chinese economy is likely to climb, in world rankings, from its current position as the sixth largest to the second largest by 2030, said economists with global investment bank Lehman Brothers.

With its gross domestic product (GDP) growing at an annual rate of 6 per cent, China will come in after the United States to secure the second place spot, the economists said.

Such an economy stands to offer exciting business and capital market opportunities to foreigners over the next 10 years or so, said Robert Subbaraman, a Lehman Brothers senior economist who is the co-author of a newly released comprehensive report on China's economic, political, social and foreign policy prospects over the next 10 years.

At a press conference last week in Beijing, Subbaraman and his colleagues offered detailed explanations of their forecasts regarding the impact of the country's accession to the World Trade Organization (WTO), growth opportunities and how to do business in China.

WTO Impact

China's economy will be disrupted in the short term, but in the long run, it can benefit immensely from its WTO entry, said Subbaraman.

Rising numbers of bankruptcies and displaced workers are likely, as increased trade competition after the WTO forces a reallocation of resources away from protected and less competitive industries to sectors where China has more of a comparative advantage, he said.

According to the International Monetary Fund, WTO accession will subtract 0.3 per cent from China's real GDP growth in the first year.

Subbaraman said potential losers from the accession include the highly protected agricultural, telecommunications and banking sectors and some of the more capital-intensive ones such as the auto industry.

Besides short-term adjustment costs, WTO accession will have a profound effect on the composition of China's balance of payments, he said.

The reduction in trade barriers will lead to a substantial increase in merchandise imports but only a modest rise in exports.

Furthermore, WTO entry will help spur the development of the legal and regulatory framework and accelerate reform. in the bank and enterprise sectors, thus creating demand for foreign services — financial, accounting, management consultancy and legal — to support restructuring.

As a result, the current account surplus of US $ 20.5 billion in 2000 is likely to decrease and could sink into a small deficit by 2003, Subbaraman said in his report.

However, the decrease in Chinas s current account should be more than offset by an improvement in the capital account, noted Paul Sheard, chief economist for Lehman Brothers Asia.

The liberalization of China's services sector should attract stronger FDI (foreign direct investment) inflows, while measures to strengthen the rule of law and to broaden and deepen the bond and equity markets should help deter portfolio capital flight.

"On our estimates, actual FDI will soar from US $ 46. 8 billion today to a round US $ 65 billion by the end of 2003,” he said, adding that China's overall balance of payments surplus is expected to increase steadily in the coming years.

"This means that the tendency for the RMB will be to appreciate once China begins to move toward a more flexible exchange rate regime," he said.

In the long run, WTO entry is expected to add around 1.3 per cent per annum to China's GDP growth, he added.

"We are optimistic that China will achieve an average 6 per cent growth over the next two decades," he said at the press conference.

Business Bible

In the report, Subbaraman said the answer to the question: "Should we be there？ is a cautious "yes” for multinational inv

A．Y

B．N

C．NG